Can you afford your dream retirement?

Planning your dream retirement can be an exciting time. The chance to travel overseas or around Australia without having to rush back to work, time to pursue new hobbies, learn a language or spend time with the grandkids. The possibilities are endless, but what will it cost?

Working out how much you will need to live the dream, and what you can afford will come down to a variety of factors. These include whether you own your home, the value of your superannuation and other investments, the return you earn on those investments and your spending patterns. You may also have a younger spouse who will be dependent on income from your investments after you die.

And that’s the big unknown, because none of us know how long we will live.

Plan for a long life

Today’s 65-year-olds can expect to live to an average age of 84.6 years for men and 87.3 for women, or roughly 20 and 22 years respectively in retirement. That’s a long time, and it’s only an average. Half will live longer than that.i

The challenge is to ensure your cash lasts the distance, however long that may be.

A good way to begin thinking about your retirement needs and working out a budget is to visit the ASFA Retirement Standard, where you will find detailed budgets for different households and living standards.ii

Adding up the costs

The ASFA Retirement Standard calculates that singles aged around 65 would need $27,425 a year to live a modest lifestyle while couples would need $39,442. A comfortable lifestyle would cost $42,953 for singles and $60,604 for couples.

To put this in perspective, the full age pension is currently $23,823.80 a year for singles and $35,916.40 for couples.iii As you can see, this does not stretch to ASFA’s modest budget, let alone a comfortable lifestyle, especially for pensioners who are paying rent or still paying off a mortgage.

Of course, everyone’s needs will be different. Some people may need to spend more on their health, while a contented gardener and homebody may need less money than a keen global traveller with a season ticket to opera, theatre or football.

It’s also important to recognise that your spending patterns are likely to change in predictable ways over the course of your retirement, determined by your health and mobility.

The three stages of retirement

Most people go through three phases of retirement.

• The active years. In your 60s and 70s you finally have the flexibility to travel, spend time with the grandkids and pursue other interests. Expenditure is likely to be high, especially if overseas travel is high on your bucket list. You may also want to help your adult children financially.

• Slowing down. At some point the joints get a little creaky, your mobility and activity decline as does your spending. Travel is closer to home, you may do some voluntary work and begin to live a little more frugally. Spending on health may increase and many will consider downsizing their home.

• The frail years. Most of us hope to remain in our own homes, but many will spend our final years in residential aged care. This may be due to increased frailty, a sudden medical event or cognitive decline. Whatever the reason, spending on health and aged care are likely to increase significantly. While government subsidies may reduce the out-of-pocket costs, having savings will increase your options and access to high quality care at home or an aged card facility.

Seek professional help

Australians are living longer, healthier lives which means many of us can expect to enjoy almost as many years in retirement as we did in the workforce. And that requires careful financial planning.

Before you can set financial targets and investment objectives, you need to work out what your dream retirement might cost.

1. https://www.aihw.gov.au/getmedia/7b986857-7b41-4aae-b7ff-eab57eb20f13/20457.pdf.aspx?inline=true

2. https://www.superannuation.asn.au/resources/retirement-standard

3. https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/eligibility/payment-rates

Learning from little ones

Feel like you could fill a book with all the weird and wonderful statements you’ve heard from your kids? Ever been on the receiving end of an ‘honest’ comment from a kid (and a rushed “sorry, no filter on this one!” from their parent)?

There’s a reason kids’ quotes are popular topics everywhere from Twitter and Instagram to forums and blogs. Before little ones learn manners and pick up on the subtle ‘rules’ of social interaction in different contexts, they’re pretty happy to say whatever is on their mind.

Behind that lack of inhibition is something deeper, too. Kids don’t have the hindrance of past experience to hold them back from enjoying life. And that’s where the lessons lie.

Dreaming big

Ask a little kid what they want to be when they grow up, and chances are you’ll get anything but doctor, lawyer or engineer. But that kid who’s determined to be a crime-fighting dinosaur when he grows up might be on to something. Same with the little girl who wants to drive a garbage truck.

What would your career path look like if you didn’t care what other people thought of your job? Would you have chosen a different job if you’d felt more confident in your ability to push yourself to be the best – at whatever you picked? What about if you based your choice on the opportunity to interact with people all the time, or build something tangible, or go on ‘adventures’ overseas?

Ask for help

As kids grow up, they learn how to do things for themselves. They establish independence, and that’s a good thing. However, especially when they’re younger, they also have no qualms about asking for help. That’s because they implicitly trust the people they’re surrounded with, and they know their parents or guardians will give them a hand whatever the circumstances.

If you’ve been feeling like asking a family member, friend or trusted colleague for help with something, try to remind yourself that your relationship creates a safe space where you can speak up and that it’s Ok to admit you need a helping hand.

Make friends easily

There’s a reason that most people make friends at a much slower rate as they get older compared to their school days. And it’s not just work, family or a lack of free time. Often adults judge people by their appearance, or are afraid that others are judging them, or are just too shy or afraid of being rebuffed to take things further than small talk.

You might not follow your kid’s lead, march up to a stranger and ask if they’d like to be best friends. But you can start small. Next time you make a new acquaintance who you’d like to be friends with, why not take the plunge and ask them out for coffee, a drink, or something related to your mutual interest/s. You’ve got nothing to lose.

Try new things

With the (notable) exception of most veggies, kids are pretty open to trying new things. Adults, on the other hand, have subconscious minds packed with memories of being injured/being upset/getting in trouble. The desire to avoid negative experiences can cause us to play a little too safe in the way we lead our lives and mean that we miss out on the joyful moments as well.

Before declining an opportunity or invite to do something new, ask yourself why your first instinct was to say no. After all, life’s too short not to take chances.

As the writer William W. Purkey once said:
“You've gotta dance like there's nobody watching, love like you'll never be hurt, sing like there's nobody listening, and live like it's heaven on earth.”